MONTH IN REVIEW

Equities continued to rally in July for a third straight month. Some of the key drivers for the continued rise in asset prices included stronger than expected corporate earnings, positive economic data, and progress surrounding US trade policies. Following a return of 5.08% in June (total return), SPX (the S&P 500) returned 2.24% (total return) in July. After returning 6.34% (total return) in June, NDX (the Nasdaq-100) returned 2.41% (total return) in July. The Russell 2000 returned 1.73% in July after a gain of 5.43% in June. SPX & NDX held their key moving averages in July, which we will illustrate later in this note.

High Yield, Real Estate & Bitcoin all rallied in July with the risk-on backdrop. Following a return of 1.84% in June (total return), High Yield (Bloomberg US Corporate High Yield Total Return Index) returned 0.45% (total return) in July. Following a return of 0.77% in June (total return), Real Estate (Dow Jones US Real Estate Capped Index) returned 0.16% (total return) in July. Bitcoin returned 8.54% in July (Bloomberg Bitcoin Index) after a 2.84% gain in June.

Treasuries sold-off in July as inflation ticked higher and the Fed left short-term rates unchanged. The long-end of the curve underperformed. The 10-yr closed at 4.37% to end the month, near the midpoint of its important 4.20% – 4.50% technical range. The 30-year Treasury yield ended the month at roughly 4.90%. Over the past several months and years, the correlation between equities and fixed income has been notably high – and likely will remain so. Additionally, the 2/10 Treasury yield spread remained positive and steepened in July after its record-long inversion came to an end in the second half of 2024.

Another notable datapoint from July was the release of June’s inflation data: Core CPI printed 0.3% M/M, matching the consensus. PPI printed 0.2% M/M, above the 0.0% consensus. PCE printed 0.3%, matching the consensus. Core PCE printed 0.3%, also matching the consensus.

The next Fed meeting will take place on 9/16-9/17, and there is a 25bps cut expected. Looking forward, and as of the end of July, the market is pricing in a total of 50bps of cuts for the remainder of 2025 (two cuts). The Fed continues to target 2% inflation as its goal and incoming inflation reports will likely continue to drive the dot plot.

According to FactSet, the trailing 12-month P/E ratio for SPX is 27.7, which is above the 5-year average (25.0), and above the 10-year average (22.6). The forward 12-month P/E ratio for SPX is 22.1, which is above the 5-year average (19.9), and above the 10-year average (18.4). Additionally, per FactSet, SPX is reporting Y/Y revenue growth of 6.3% for Q2 2025, which is above the estimate of 4.2% on June 30. Finally, per FactSet, SPX is reporting Y/Y earnings growth of 11.8% for Q2 2025, which is above the estimate of 4.9% on June 30.

Within commodities and currencies: WTI Crude Oil rose in July by roughly 6.50% to close near $69/bl. Gold fell by roughly 40bps in July to close near $3,285/oz. Finally, the USD/DXY reversed its recent downtrend in July and closed the month out near 99.80. 2025 has been one the weakest starts to a year for the USD in decades.

VOLATILITY UPDATE

After closing out June near 16.75, the VIX Index closed out the month of July near where it started (16.72 at month’s end). The 12-month high of the VIX Index was registered on 8/5/24 at 65.73. In 2022, the VIX averaged over 25. In 2023, the VIX averaged near 17. And in 2024, the VIX averaged near 15.50.

The MOVE Index calculates the future volatility of US Treasury yields implied by current prices of options on Treasuries of various maturities. It is thought of as “The VIX Index of the Bond Market.“ After closing out June near 90, the MOVE Index fell by the end of July and closed out the month near 80. Traders will continue to monitor this index to gauge potential future bond and equity volatility. Equities tend to favor a subdued MOVE Index.

NOTABLE CHARTS

LOOKING AHEAD

Among other factors, the market will be adjusting to and watching US trade policy developments, inflation, earnings, yields, geopolitical risks, and the fiscal policy.  On the inflation front, July’s CPI will be released on 8/12, and PPI will be released on 8/14.  Finally, the next FOMC meeting will take place on 9/16-9/17, and the market is expecting a 25bps cut.